HIAP HOE LIMITED ANNUAL REPORT 2008 CREATING VALUE. Signature Homes. by HiapHoe

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1 CREATING VALUE Signature Homes by HiapHoe

2 VISION, MISSION, VALUES A richer life for each of us Be a competitive market player in residential properties, bringing reward and satisfaction to shareholders, customers, associates and employees We prize foresight, integrity and commitment among other time-honoured values CONTENTS 01 Corporate Profile // 03 Financial Highlights // 04 Chairman s Statement 07 Group Structure // 08 Board of Directors // 10 Key Management 11 Calendar of Events // 13 Financial Review // 15 Risk Management 16 Residential Property Portfolio

3 CORPORATE PROFILE The Hiap Hoe Group has more than three decades of experience in construction and building, and has been responsible for a large and varied number of architectural and structural projects in Singapore. Hiap Hoe is primarily focused on developing freehold residential properties that have a distinctive appeal in design, finish, and are preferred for their excellent investment prospects, and location. Prominent among these developments are the City Edge, Cuscaden Royale and Oxford Suites, which were fully sold soon after their respective launches, as well as Signature at Lewis and The Beverly, which were launched recently. Hiap Hoe s civil engineering and construction activities are conducted through its wholly owned subsidiary, Westbuild Construction Pte. Ltd. ( Westbuild ). Westbuild is mainly engaged in the building of the Group s developments, while pursuing opportunities via third-party contracts. 0 1

4 VALUE, THROUGH DEVELOPMENT To create greater achievement and turn possibility into potential, our organisation angles itself confidently towards value-adding property development. It is through constantly enhancing and strengthening our portfolio that we are then able to ensure a future of attainable potential.

5 FINANCIAL HIGHLIGHTS $ 000 $ 000 $ 000 Group Profit and Loss Accounts Revenue 29,729 92,220 50,566 Profit from Operating Activities 8,532 22,871 18,078 Profit before Taxation 8,252 22,966 16,831 Net Profit Attributable to Equity Holders of the Company 8,291 19,452 12,588 Group Balance Sheet Property, Plant and Equipment 3,741 3,923 3,867 Investment Properties 7,192 5,750 5,750 Investment in Joint Venture Current Assets 523, , ,761 Current Liabilities 20,921 27,375 28,226 Non-Current Liabilities 371,793 72,512 41,155 Equity Attributable to Equity Holders of the Company 141, ,271 68,997 Per Share Data (Cents) Earnings after Tax 1 (Basic) Net Tangible Assets Financial Ratios Return on Average Shareholders Funds (%) Debt Equity Ratio (Times) Current Ratio (Times) Quick Ratio (Times) Note: (1) For comparative purposes, the ratio for FY2006 is adjusted to take into effect of the share consolidation. The Share Consolidation was effective on 25 January Under the Share Consolidation, the Company consolidated every five ordinary shares in the capital of the Company into one ordinary share. 0 3

6 CHAIRMAN S STATEMENT Chairman Mr Teo Guan Seng BBM Dear Shareholders, Following a triumphant 2007, many had expected the strong economic momentum to continue right well into Contrary to such expectation, the year in review turned out to be one of the most trying years in a decade for residential property developers. At the close of the year, a total of 4,464 residential units in Singapore were sold. This is a significant decline from 2007, when 14,811 units were sold. At the same time, prices of private homes fell an average of 4.7% over the previous year, whereby the sharpest decline in prices was seen in the Core Central Region, which includes districts 9,10 and 11, where some of the Group s developments are situated in. In spite of the challenging operating conditions, we managed to turn in a modest net profit of $8.3 million for The bulk of our income for 2008 came from our trademark niche developments, Cuscaden Royale and Oxford Suites, which were both sold out soon after their respective launches in Together with City Edge, which was completed and handed over in 2007, all three developments generated revenue throughout 2008, contributing more than 95% to the Group s full year turnover of $29.7 million. Other significant sources of revenue came from rental properties, and inter-company transactions such as with our construction division, Westbuild, which was focused solely on constructing our own projects totalling $8.2 million in In July 2008, we initiated a rights issue of one rights share for every four ordinary existing shares. An aggregate of 76 million new ordinary shares were issued at a price of $0.28 each, thereby allowing us to raise net proceeds of approximately $21.0 million. The intention of this rights issue was to strengthen our balance sheet for possible new acquisitions and working capital purposes. This proved to be a timely move as it enabled us to join forces with SuperBowl Holdings Limited to tender for the Balestier Road / Ah Hood Road land parcel, which the Group won at a price of $73.3 million in August This is the third joint venture project by Hiap Hoe Limited and SuperBowl Holdings Limited, the first two being The Beverly and The Aspine. In light of the downturn for niche residential apartments in Singapore, the Balestier Road / Ah Hood Road tender could not have come at a more appropriate time, as our winning tender price was well below what analysts had initially indicated the plot to be worth. The Balestier Road / Ah Hood Road land parcel is situated in a relatively prime central area, being just a stone s throw from Novena MRT and a short drive from Orchard Road. We intend to develop the Balestier Road / Ah Hood Road plot into a hotel and commercial property, whereby 60% of the land will be used for hotel facilites and the other 40% will be for commercial purposes like offices and retail space. Occupying an area of 190,000 sq ft, the 99-year leasehold land will be our largest project to date. The development of this site is part of URA s plan to kick-start its rejuvenation of the Balestier area, which has been designated as one of 0 4

7 CHAIRMAN S STATEMENT Singapore s identity nodes since Known for its strong heritage value and old world charm, the Balestier site will be a landmark development that will have a strong connection with the heritage Sun Yat Sen Nanyang Memorial Hall. This project at Balestier will be the Group s largest project to date, and marks our first foray into the hospitality business, which we hope will provide a new revenue stream in the long run. The project is slated for completion in the next few years, and will be in conjunction with the opening of Singapore s integrated resorts and hopefully an improving economy. Despite credit tightening, we have also managed to successfully secure financing for all of our residential development projects, thus placing us in a relatively good financial position to withstand the tumultuous year ahead. In addition, our short-term bank borrowings have declined due to the repayment of bank loans by a subsidiary company, and the reclassification of some short-term debt into long-term loans. In view of the deteriorating economic conditions over the course of 2008, we experienced a significant decline in the number of investors and homebuyers looking to purchase residential property, particularly in the core central region. We have thus deferred several planned launches and are now looking forward to launching Waterscape at Cavenagh along Cavenagh Road in the later part of As for the launches of Skyline St. Thomas Walk and The Aspine at Balmoral Road, they may be deferred till 2010/2011. Meanwhile, we have launched The Beverly at Toh Tuck Road at the end of February 2009, and have commenced construction of Lewis, located off Bukit Timah Road. We do not expect the dip in homebuyer sentiment to last an extended period of time. Hiap Hoe s niche signature homes have always been popular with consumers, and as such, we believe interest in these projects should return once the Singapore economy begins to turn around will be a challenging year for the property market. Nonetheless, the upcoming opening of the integrated resorts and the Government stimulus package for businesses should provide some light at the end of the tunnel. We will continue to be vigilant in containing costs, while keeping a close watch on the development of the economy for an opportune time to launch our residential projects. In the meantime, we will be going ahead with the construction of some of these projects. The Board has reviewed the capital structure of the Company and is recommending a final dividend of 0.25 cent per ordinary share for During what has been a difficult year, we received tremendous support from our bankers and business associates, and I would like to place on record my appreciation for their confidence and belief in us. Our shareholders, by holding on to their stake in Hiap Hoe, have also been a source of encouragement, and I would like to thank them for their unwavering trust and patience. I would also like to extend my heartfelt appreciation to our Board members, the management and staff, for their contribution and hard work during such demanding times. Although the year ahead will continue to be challenging, we believe that with all of you walking alongside the Group, we will be able to emerge even stronger from this period of trials and tribulations. Teo Guan Seng, BBM Chairman 0 5

8 VALUE, WITH STRATEGY As our organisation takes constant strides towards greater achievement, we remain focussed and firm with strategy. While we take the right measures to ensure that we address the needs of our stakeholders and the industry, good strategy is what identifies us as creators of value.

9 GROUP STRUCTURE Hiap Hoe Limited Construction Company Hotel / Commercial Properties Development Companies Residential Properties Development Companies (100%) Westbuild Construction Pte. Ltd. (40%) (100%) Cantonment Development Pte. Ltd. Leng Hoe Development Pte. Ltd. (100%) Leong Hoe Development Pte. Ltd. (50%) (100%) HH Properties Pte. Ltd. Oxford Development Pte. Ltd. (100%) Cavenagh Properties Pte. Ltd. HHA Properties Pte. Ltd. (50%) (100%) Bukit Panjang Plaza Pte Ltd (100%) Guan Hoe Development Pte Ltd (100%) Keng Hoe Development Pte Ltd (100%) Siong Hoe Development Pte Ltd Hiap Hoe Superbowl JV Pte. Ltd. (60%) (100%) Wah Hoe Development Pte. Ltd. Goodluck View Development (60%) 0 7

10 BOARD OF DIRECTORS Teo Guan Seng, BBM (Chairman) Mr Teo was appointed as Director and Chairman of Hiap Hoe Limited (Hiap Hoe) on 16 January 2003, and has been the Managing Director of Hiap Hoe Holdings Pte Ltd and its Group of subsidiaries (Hiap Hoe Group) since 14 March He is also a member of the Nominating Committee. As the founder of the Hiap Hoe Group, Mr Teo s expertise and experience in the construction, property and leisure industries have been instrumental to its growth and development. Mr Teo is involved in chairing the Board of Directors meetings. Mr Teo Guan Seng is currently the Executive Chairman of SuperBowl Holdings Limited (SuperBowl) and is involved in ensuring the implementation of corporate policies and strategies. He is also responsible for the financial and operational performance of SuperBowl. He was awarded the PBM (Pingat Bakti Masyarakat) in 1995, and the BBM (Bintang Bakti Masyarakat) in Teo Ho Beng (Managing Director / Chief Executive Officer) Mr Teo was appointed as Director and Managing Director on 16 January 2003 and has been a Director of Hiap Hoe Group since He assumed the position of Chief Executive Officer on 16 January He has more than 34 years of experience in the construction and property industries, and over 19 years of experience in the leisure industry. Mr Teo is responsible for the formulation of corporate strategies and policies for Hiap Hoe, and ensures their implementation by senior management at the operations level. He also chairs the senior management meetings to monitor Hiap Hoe s performance, and oversees management, budgeting and forecasting procedures to ensure there is prudent financial management. Mr Teo is currently the Managing Director of SuperBowl. He is also a member of the Singapore Institute of Directors. As a Managing Director, he is not subject to retirement by rotation. 03 Teo Ho Kang, Roland (Executive Director) Mr Teo was appointed as Director on 16 January He has been a Director of Hiap Hoe Group since 1999, and was appointed as the Deputy Managing Director of SuperBowl in With more than 16 years of experience in the property and leisure industries, Mr Teo is responsible for overseeing the marketing and promotion of Hiap Hoe s properties and their performance. He also takes care of the Group s product development and business expansion, as well as human resource and staff development. Mr Teo holds a Bachelor in Business Administration degree from the American Intercontinental University (UK). His last re-election to the Board was on 19 April Lim Kim Soon Lee, Cindy (Executive Director) Ms Lim was appointed as Director on 16 January She is a Certified Public Accountant and has been the Financial Controller of SuperBowl since With more than 20 years of experience in finance, Ms Lim is responsible for overseeing the financial affairs and business development of Hiap Hoe and SuperBowl. Ms Lim was an auditor at Deloitte & Touche, Singapore before joining the airline industry. She graduated from the National University of Singapore with a Bachelor of Accountancy degree in Her last re-election to the Board was on 19 April

11 BOARD OF DIRECTORS Chan Wah Tiong (Independent, Non-Executive Director) Mr Chan was appointed as Director on 14 August 1998, and has been an independent Director of the Company since He is the Chief Operating Officer of All Saints Home, a non-profit organisation that provides residential nursing care for the elderly infirm of all races and religions in the community. Mr Chan brings extensive financial, accounting and compliance experience, having served as external Auditor, Accountant, Financial Analyst, Financial Director and CFO of several companies (both local and multinational) in semiconductor, manufacturing, trading, construction and non profit organisation. Mr Chan is also an Independent Director of Koda Limited, a company listed on the Singapore Exchange. He is also the audit committee chairman of Care Corner Singapore a nonprofit voluntary welfare organisation that provides a wide scope of community services. A Certified Public Accountant with the Institute of Certified Public Accountants of Singapore, Mr Chan holds a Bachelor of Accountancy and a Graduate Diploma in Social Work from the National University of Singapore. His last re-election to the Board was on 24 April Dr Wang Kai Yuen (Independent, Non-Executive Director) Dr Wang was appointed as Director on 25 January He chairs the Remuneration Committee and the Nominating Committee and is a member of Audit Committee Dr Wang served as a Member of Parliament for the Bukit Timah Constituency from December 1984 till April He was the Chairman of Feedback Unit from 2002 till his retirement from politics. He is currently the Center Manager of Fuji Xerox Singapore Software Centre, and has helped to establish similar centres around the world. Dr Wang also holds directorships at ComfortDelgro Group Ltd, Cosco Corp Singapore, CAO (Singapore) Corp, Asian Micro Holdings Ltd, Ezion Holdings Ltd, Xpress Holdings Ltd, China Lifestyle Foods and Beverages Group Ltd, Matex International Ltd, and others. He graduated from the National University of Singapore with a Bachelor of Engineering (First Class Honours in Electrical and Electronics) in Dr Wang holds a Master of Science in Industrial Engineering, Masters of Science in Electrical Engineering, and a Doctorate in Engineering from Stanford University (USA). His last reelection was on 24 April Chan Boon Hui (Independent, Non-Executive Director) Mr Chan was appointed as Director on 4 April He has been a Senior Banker (Investment Banking) with OCBC Bank since September Prior to that, he was the Managing Director of Chancery Capital Pte Ltd. He has more than ten years of investment banking experience with BNP Paribas Peregrine and the Rothschilds Group in Singapore and New York. Mr Chan graduated from Cambridge University (UK) with a Master of Arts (Hons)(Law) in 1994, and is a Chartered Financial Analyst. His last re-election to the Board was on 21 April

12 KEY MANAGEMENT Aw Hui Mien, Jenny assumed the position of Financial Controller of Hiap Hoe Limited on 1 February She is a Certified Public Accountant and a member of The Association of Chartered Certified Accountants (ACCA). After completing the ACCA examinations in 1993, Ms Aw worked as a graduate assistant with KPMG for a year. She joined the Hiap Hoe Group in 1995, and her current responsibilities include overseeing the Group s accounts and related matters. Seoh Choon Hong, the Senior Accountant, is a graduate of the ACCA and a Certified Public Accountant who has gathered more than 14 years of experience in auditing and accounting. Prior to joining Hiap Hoe Limited in January 2003, Ms Seoh was a Management Accountant with a public listed company. She is involved in the financial, taxation and corporate secretariat matters for the Hiap Hoe Group. Teo Poh Sim is the Company s Administration Manager. When she joined the Company on 1 February 2003 in that capacity, Ms Teo brought with her more than ten years of experience in human resource and administration. She is responsible for formulating the human resource and administration policies of the Group, and oversees the Group payroll, staff welfare and staff development, as well as administration. Ms Teo holds a Bachelor of Arts degree from the Pacific Union College (USA). Bridget Tan joined the Company in October 2006 as a Senior Manager (Property Development). With more than 17 years of experience in real estate development, she oversees the property development arm of the Hiap Hoe Group. Stella Goh joined Westbuild Construction Pte Ltd in July 2005 as a Leasing Manager. With more than 16 years of involvement in property leasing, she has extensive specialist knowledge of the field. Ms Goh had worked for another well-known property developer before coming on board. Her responsibilities include the leasing of commercial and residential properties within the Hiap Hoe Group. 1 0

13 CALENDAR OF EVENTS 2 January Completion of Acquisition of Clemenceau Court at 65 Cavenagh Road Singapore February Completion of Joint Acquisition of the Development Known as The Aspine 21 February Release of Full Year Financial Statement and Dividend Announcement 22 February Completion of Joint Acquisition of Goodluck View at 45 and 47 Toh Tuck Road 24 April Annual General Meeting / Extraordinary General Meeting 7 May Change of Company Secretary 14 May First Quarter Financial Statement and Dividend Announcement 14 May Proposed Renounceable Rights Issue 22 May Incorporation of Associated Company HHA Properties Pte. Ltd. 22 May Incorporation of Subsidiary HH Properties Pte. Ltd. ( HHP ) 13 June Disposal of 50% Shares in HH Properties Pte. Ltd. to SuperBowl Holdings Limited 8 July Press Release Hiap Hoe Launches Luxury Homes at Lewis Road 16 July HHP tendered for Land Parcel at Balestier Road / Ah Hood Road for Hotel and Commercial / Residential Development 24 July Listing of and Quotation for the Rights Issue 28 July Incorporation of Cantonment Development Pte. Ltd. 7 August Award of Tender for Land Parcel at Balestier Road / Ah Hood Road for Hotel and Commercial / Residential Development 8 August Second Quarter Financial Statement and Dividend Announcement 4 November Completion of Acquisition for Land Parcel at Balestier Road / Ah Hood Road for Hotel and Commercial / Residential Development 7 November Third Quarter Financial Statement and Dividend Announcement 1 1

14 VALUE, IN COLLABORATION Although our efforts are focussed on the creation of value, it is with the assistance of our partners and support from our shareholders that we are able to reach greater heights. As we strive to create greater value in future, their contributions are what propel us forward with full confidence and strong momentum.

15 FINANCIAL REVIEW The Group achieved a turnover of $29.7 million for the full year ended 31 December 2008 (FY2008), which was a decline of 67.8% from $92.2 million recorded in the previous financial year (FY2007). The fall in overall Group revenue for FY2008 was largely due to a general reduction in selling activity by the Group, in view of the weak property sentiment in FY2008. In line with reduced activity, cost of sales also declined 73.3% to $16.5 million from $61.9 million in FY2007. As such, gross profit was $13.2 million, 56.4% lower than $30.3 million achieved in FY2007. Nevertheless, gross profit margin improved from 32.8% to 44.4%. Almost all of the revenue for FY2008 was derived from progressive revenue recognition for Cuscaden Royale and Oxford Suites, and from City Edge, which was handed over at the end of FY2007. Cuscaden Royale and Oxford Suites, which were both fully sold soon after their launches in FY2007, contributed $18.2 million and $5.1 million respectively to the Group s top line, while sales proceeds from City Edge contributed $5.0 million. The Group s construction arm, Westbuild Construction Pte. Ltd., recorded $8.2 million in revenue, of which $6.9 million was generated from working on the Group s projects. Hence, this inter-segment revenue was not reflected in the turnover at Group level. Other income increased from $0.6 million in FY2007 to $1.9 million in FY2008 mainly due to fair value gain on investment properties of $1.4 million. Distribution and selling expenses for FY2008 was $3.6 million, down from $4.8 million in FY2007. The bulk of these expenses incurred in FY2008 was for the construction of two show suites Signature at Lewis and Waterscape at Cavenagh. Administration expenses decreased to $2.8 million in FY2008 from $3.2 million in FY2007, as a result of cost savings initiatives implemented. Downward movements in the equity markets resulted in a fair value loss on quoted investments in FY2008. As such, other expenses for FY2008, which comprised mainly of fair value loss on quoted investments was $196,000, while other expenses for FY2007 was $74,000, due to a loss on disposal of property, plant and equipment. Finance expenses fell from $315,000 in FY2007 to $36,000 in FY2008 as most of the interest cost incurred in FY2008 was related to projects under construction and hence was capitalised. 1 3

16 FINANCIAL REVIEW During the year, the Group constructed a show suite for one of its projects, The Beverly, which is a joint venture residential development project with SuperBowl Holdings Limited. The Group s share of this cost item, which amounted to $0.6 million, was expensed off as marketing expenses and this was reflected as share of loss in the joint venture. Tax expenses was a mere $0.1 million in FY2008 as opposed to $3.5 million in FY2007, due to a $1.9 million tax discharge and excess tax provisions of $0.3 million for subsidiary companies in prior years, which partially offset the deferred tax and current tax of $2.3 million. The deferred tax liability was incurred as profit was recognized on a few projects prior to their being granted temporary occupancy permit (TOP). The Group s cash and cash equivalents decreased by $20.4 million to $9.9 million in FY2008 as a result of cash drawn down to finance the construction of various residential property development projects as well as for the acquisitions of four plots of land at Toh Tuck Road, Balmoral Road, St Thomas Walk and Balestier Road / Ah Hood Road. At the close of FY2008, net cash used in operating activities was $281.6 million. Net cash used in investing activities as at end of FY2008 was $41.6 million, and was mainly in relation to an advance payment of $37.8 million to joint venture company for the acquisition of the land parcel at Balestier Road / Ah Hood Road. Net cash generated from financing activities was $302.9 million at the end of FY2008, which was significantly higher as compared to $52.9 million in FY2007. This was largely due to increased bank borrowings of $301.7 million, and a Rights Issue which raised about $21.0 million. The funds were raised to strengthen the balance sheet for possible new acquisitions and working capital purposes. These cash inflow was partially used to repay short-term bank borrowings of $15.0 million, bank interest of $6.6 million, and dividend amounting to $3.0 million. In addition, the Group spent $159,000 to buy back shares from the open market. This was initiated with the objective of improving shareholder value. The Group s current assets increased sharply by 155% to $523.4 million mainly because of the increase in the value of development properties from $134.5 million in FY2007 to $463.1 million in FY2008, the addition of new plots of land acquired for development, and the capitalisation of construction costs. This resulted in an increase in non-current borrowings from $70.0 million to $367.6 million. With net asset value standing at $141.4 million, the Group is comfortably poised to wait for the eventual economic upturn, to launch some of its projects. 1 4

17 RISK MANAGEMENT The practice of risk management is undertaken by the Company s Executive Directors and senior executives of each business division under the purview of the Board of Directors. The Group s performance depends largely on its ability to manage a few key areas that have the greatest repercussions on its growth and profitability. Interest Rate Exposure Changes in interest rate are a major influence on the bottom line because the Group mainly finances its investments through bank borrowings. The Group manages interest rate risk by arranging different credit facilities with various banks at competitive rates. It further hedges against fluctuations in the cost of borrowing through interest rate swap. Responsiveness to Market Sentiment The single most important income generator for the Group is property sales. The ability to tune its marketing strategy to buyers sentiments is crucial to achieving high sales volume and healthy profit margins. The next challenge for the Group will be to seek an opportune time to launch some projects under its portfolio in the midst of the global financial turmoil, which has affected the overall property market sentiment. Reliability of Suppliers and Subcontractors As part of good practice, the Group calls for tenders when selecting sub-contractors and suppliers for large-scale projects. This enables it to secure quality products and services at competitive prices. However, where the project size is small, the Group may, from time to time, re-engage past partners who have proven track records. That is because the reliability of its partners has a knock-on effect on the efficiency and quality of the Group s developments, and ultimately, on its ability to deliver on its commitment to homebuyers and other stakeholders. Timeliness in Completion of Projects The Group has a high degree of control over the timeliness of its projects as their construction is assigned to its fully-owned construction company, Westbuild Construction Pte. Ltd. Timeliness in completion and delivery ensures compliance with contractual agreements, and prevents financial loss and interruptions in cash flow. Human Resource Management Keeping costs low and efficiency at its peak, the Group relies on a remarkably small team of dedicated staff for their contribution and continued service. The Group has to ensure that it is able to attract and retain high-calibre and dedicated staff that is highly crucial for the success of its business. Skilful human resource management paves the way for the Group to continue on the path of growth. 1 5

18 RESIDENTIAL PROPERTY PORTFOLIO Freehold Property CITY EDGE 18 Moulmein Rise Singapore CUSCADEN ROYALE 5 Cuscaden Walk Singapore OXFORD SUITES 23 Oxford Road Singapore SIGNATURE AT LEWIS 1 Lewis Road Singapore WATERSCAPE AT CAVENAGH 67 Cavenagh Road Singapore THE BEVERLY 45/47 Toh Tuck Road Singapore /22 THE ASPINE 5 Balmoral Road Singapore SKYLINE THOMAS WALK 70 St Thomas Walk Singapore Approximate Land Area (sq. metres) Gross Floor Area (sq. metres) Effective Group Interest (%) Expected Completion Date (Current Stage of Completion) 1,573 4, % 6 December 2007 (100%) 1,606 4, % 31 December 2010 (31%) 1,701 4, % 31 March 2011 (27%) 2,014 3, % 31 December 2011 (-) 9,412 19, % 31 January 2013 (-) 11,516 16,122 60% 30 April 2013 (-) 4,283 7,414 60% 31 March 2013 (-) 4,088 11, % 30 June 2012 (-) Percentage of units sold as at 31 December % 100% 100% - (1) - (1) (1) Note: (1) These properties will be launched after FY

19 FINANCIAL CONTENTS 18 Corporate Governance // 30 Directors Report // 35 Statement by Directors 36 Independent Auditors Report // 37 Balance Sheets // 39 Profit and Loss Accounts 40 Statements of Changes in Equity // 44 Consolidated Cash Flow Statement 47 Notes to the Financial Statements // 103 Statistics of Shareholdings // 105 AGM Notice 110 Summary Sheet for Renewal Shareholders Mandate for Interested Person Transactions 114 The Appendix // Proxy Form

20 CORPORATE GOVERNANCE The Board is committed to uphold effective corporate procedures and policies in compliance with the Code of Corporate Governance 2005 ( Code ). The Board believes that good corporate governance establishes and maintains an ethical environment, which strives to enhance the interests of all shareholders. This report describes the Company s corporate governance processes and activities that were in place throughout the financial year, with specific references made to the principles and guidelines as set out in the Code. Board Matters Principle 1 : The Board s conduct of affairs The Board meets regularly to review and approve the Company s strategic directions, appointment of directors, business results, major funding and investment proposals. The Board also reviews the financial performance of the Group and supervises the management of the business and affairs of the Group. The Board of Directors would ensure that decisions are made in the interests of the Company. The Board of Directors is free to request for further clarification and information from management on all matters within their purview. The Board will conduct at least 4 meetings in a year and ad-hoc meetings will be convened, when required. The Company s Articles of Association provides for the Board to convene meetings via telephone conferencing and electronic means. The attendance of the directors and the various meetings held during the financial year ended 31 December 2008 is as follows : BOARD AUDIT COMMITTEE REMUNERATION COMMITTEE NOMINATING COMMITTEE EXECUTIVE COMMITTEE Number Number of Number of Number Number Name of Meetings Attendance Meetings Attendance Meetings Attendance of Meetings Attendance of Meetings Attendance Teo Guan Seng, BBM 4 4 N.A. 1* N.A N.A. 8* Teo Ho Beng 4 4 N.A. 4* N.A. 1* N.A. 1* 8 8 Teo Ho Kang, Roland 4 4 N.A. 1* N.A. - N.A Lim Kim Soon Lee, Cindy 4 4 N.A. 4* N.A. 1* N.A. 1* 8 8 Chan Wah Tiong N.A. - Dr Wang Kai Yuen N.A. - Chan Boon Hui N.A. - * By invitation In order to provide an independent oversight and to discharge its responsibilities more efficiently, the Board has delegated certain functions to various Committees. These Committees consists of Audit Committee, Remuneration Committee, Nominating Committee and Executive Committee. The Chairman of the respective Committees will report and update the Board on the outcome of the Committee meetings and their recommendations on the specific agendas mandated to the Committee by the Board. Newly appointed directors are provided with background information about the Group and are invited to visit the Group s operations and facilities to have an understanding of the Group s business operations. Directors receive updates from time to time, particularly on relevant new laws and regulation, changing commercial risks and business conditions from the Company s relevant advisors and management. 1 8

21 CORPORATE GOVERNANCE Board Composition and Guidance Principle 2 : Strong and independent element on the Board The Board comprises three Executive Directors and four Non-Executive Directors. Three of the Non-Executive Directors are independent. This composition complies with the Code s requirement that at least one-third of the Board should be made up of Independent Directors. Executive Directors Mr Teo Ho Beng (Managing Director/Chief Executive Officer) Mr Roland Teo Ho Kang Ms Lim Kim Soon Lee, Cindy Non- Executive Directors Mr Teo Guan Seng, BBM Dr Wang Kai Yuen Mr Chan Boon Hui Mr Chan Wah Tiong (Chairman of the Board/Non-Executive Director) (Independent Director) (Independent Director) (Independent Director) The Board s structure, size and composition are reviewed annually by the Nominating Committee ( NC ). The NC is of the view that the Board is of the appropriate size and with the right mix of skills and experience given the nature and scope of the Group s operations. The Directors extensive experience in business management, strategic planning and knowledge in accounting and finance is crucial to steer the Group in the direction of growth. Details of the Directors academic and professional qualification can be found on pages 8 and 9. Chairman and Managing Director / Chief Executive Officer Principle 3 : Clear division of Board and Management responsibilities Mr Teo Guan Seng is the Chairman of the Board. Mr Teo Ho Beng, son of Chairman, is the Managing Director ( MD ) and Chief Executive Officer ( CEO ) of the Company. The Chairman performs the following pertaining to the board proceedings : (a) (b) (c) (d) schedule meetings that enable the Board to perform its duties responsibly while not interfering with the flow of the Company s operations; prepare meeting agenda in consultation with the CEO; exercise control over quality, quantity and timeliness of the flow of information between the Management and the Board; and assist in ensuring compliance with the Company s guidelines on corporate governance. The MD / CEO is responsible for the day-to-day management of the Group as well as the exercise of control over the quality, quantity and timeliness of information flow between the Board and Management and in developing the business of the Group. 1 9

22 CORPORATE GOVERNANCE Chairman and Managing Director / Chief Executive Officer (cont d) Major decisions made by the Chairman and MD / CEO are reviewed by the Audit Committee. Given the separate roles and responsibilities held by the Chairman and MD / CEO, the Board is of the opinion that their relationship does not affect the independence and effective running of the Board. As such, the Board believes that there are adequate safeguards in place to ensure a balance of power and authority, such that no one individual represents a considerable concentration of power. Board Membership Principle 4 : Formal and transparent process for appointment of Directors The Nominating Committee ( NC ) comprises of the following members of whom three are Independent Directors: 1) Dr Wang Kai Yuen (Chairman of NC/Independent Director) 2) Mr Chan Boon Hui (Independent Director) 3) Mr Chan Wah Tiong (Independent Director) 4) Mr Teo Guan Seng, BBM (Chairman of the Board/Non-Executive Director) The NC makes recommendations to the Board on all Board appointments and re-nominations. The NC has conducted an annual review of directors independence based on the Code s criteria for independence. The NC, having evaluated the independence of each Director is of the view that Messrs Chan Boon Hui, Chan Wah Tiong and Dr Wang Kai Yuen are independent. The Company s Articles of Association provide for at least one third of the Directors, other than the Managing Director, to retire from office by rotation at each Annual General Meeting. The retiring Directors shall be eligible for re-election at the Annual General Meeting. Managing Directors are not subject to retirement by rotation as the Group s success is dependent on their experience and skill. The Board has accepted NC s nomination of the retiring Directors, namely, Ms Lim Kim Soon Lee, Cindy and Mr Chan Boon Hui at this forthcoming Annual General Meeting. New Directors are appointed by way of board resolutions, after the NC has reviewed the qualifications and experience of the nominated directors. Board Performance Principle 5 : Formal assessment of the effectiveness of the Board and contribution of each Director For the year under review, the NC has evaluated the Board s performance as a whole, which includes the participation and contribution of individual Directors to the management of the Company at Board and Committee Meetings. 2 0

23 CORPORATE GOVERNANCE Access to information Principle 6 : Board members to have complete, adequate and timely information Board members are provided with detailed management information, as and when requested by the Board. In addition, all relevant information on material events and transactions are circulated to Directors as and when they arise. Draft announcements will be circulated to the Board for review and approval before dissemination to the shareholders via SGXNET. The Company Secretary would assist to prepare the Board Papers of the meetings for circulation. The Directors receive the Board paper at least 2 days before the meeting so that the Directors have ample time to review. All Board members have separate and independent access to the advice and services of the Company Secretary who is responsible to the Board for ensuring that Board procedures are followed and that applicable rules and regulations are complied with. The Company Secretary and/or her representatives are present at all Board Meetings. Should Directors, whether as a group or individually, need independent advice to fulfill their duties, they may obtain independent professional advice, if necessary, at the Company s expense. Remuneration Matters Principle 7 : Procedures for developing remuneration policies Principle 8 : Level and mix of remuneration Principle 9 : Disclosure on remuneration The Remuneration Committee ( RC ) comprises entirely of non-executive and Independent Directors and they are: 1) Dr Wang Kai Yuen (Chairman of RC / Independent Director) 2) Mr Chan Wah Tiong (Independent Director) 3) Mr Chan Boon Hui (Independent Director) The RC has adopted a framework of remuneration for the Board, and determined specific remuneration packages for each executive Director. The recommendations of RC are submitted to the Board for endorsement. The RC s objective is to establish and maintain a level of remuneration that would be appropriate to attract, retain and motivate the Directors to run the Company successfully. Each member of the RC refrains from voting on any resolutions in respect of the assessment of his remuneration. The Executive Directors have service agreements which are renewed annually. The Service Agreements may be terminated by either the Company or the Executive Directors by giving 6 months written notice of termination to the other party. Non-Executive Directors are paid directors fees, taking into consideration individual contribution, attendance at various meetings and responsibilities held at the Committee level. The breakdown of fees are as follows : Chairman of Board $45,000 Independent Member $25,000 Chairman of Audit Committee $15,000 Chairman of Remuneration Committee $ 5,000 Chairman of Nominating Committee $ 5,000 Chairman of Executive Share Option Committee $ 5,

24 CORPORATE GOVERNANCE Remuneration Matters (cont d) Such fees are subject to the approval of shareholders at the Annual General Meeting every year. Details of the remuneration of the Directors are as follows: Directors Fees 1 Salary 2 Bonus 3 Other Benefits 4 Remuneration S$ S$ S$ S$ Non-Executive Directors Teo Guan Seng BBM 45, Chan Wah Tiong 40, Dr Wang Kai Yuen 35, Chan Boon Hui 30, Executive Directors Teo Ho Beng - 361,752 92,324 11,288 Teo Ho Kang, Roland - 166,236 42,862 - Lim Kim Soon Lee, Cindy - 112,236 29,362 6,945 Notes : (1) Directors fee is provided for the financial year ended 31 December (2) Salary includes gross salary and employer CPF Contribution. (3) Bonus includes salary and employer CPF Contribution. (4) Other benefits include company car and its maintenance costs. The range of gross remuneration received by the top 5 executives (excluding executive Directors) of the Group is as follows : Remuneration Bands No. of executives $200,000 & above - $100,000 to $199,999 2 Below $100,000 3 Total 5 The range of gross remuneration of employees who are immediate family members of a Director or the Chairman: Remuneration Bands No. of employees $150,000 & above - Below $150,000 1 Employees Stock Options Scheme The Scheme is a share incentive plan that enables the Company to give recognition to the contributions made by full-time employees (including Group Executive Directors) and Non-Executive Directors and at the same time, provides them with an opportunity to participate in the equity of the Company. 2 2

25 CORPORATE GOVERNANCE Remuneration Matters (cont d) In addition, the Scheme will help to achieve the following objectives: (i) (ii) (iii) (iv) (v) motivate employees and directors, thereby optimizing their performance standards and efficiency levels; and retain key employees and directors of the Company whose contributions are important to the long-term growth and profitability of the Group; instill loyalty to, and a identification by employees with the long term prosperity of the Group; attract potential employees with relevant skills to contribute to the Group and to create value for the Shareholders of the Company; and align the interests of the employees with that of the Shareholders. The Scheme, which was approved by the shareholders on 28 April 2004, is administrated by the Executive Share Option Committee. The Committee administering the Scheme comprises the following directors of the Company:- Mr Chan Boon Hui (Chairman) Mr Chan Wah Tiong Dr Wang Kai Yuen Mr Teo Ho Beng The aggregate number of Shares in respect of which Options may be offered to an employee or Director for subscription in accordance with the Scheme shall be determined at the discretion of the Committee, who shall take into account criteria such as the rank and responsibilities within the Group, performance, years of service/appointment and potential for future development of the Grantee and the performance of the Group. The maximum number of Shares to be issued under the Scheme shall not exceed 15% of the issued share capital of the Company at any time, and from time to time, during the existence of the Scheme. The size takes into account the issued share capital of the Company, the potential increase in the number of Employees and Non-Executive Directors and the grant of the Options over the duration of the Scheme. Controlling shareholders of the Company or Associates (i.e. Teo Ho Beng, Teo Ho Kang, Roland and Teo Poh Sim) of such Controlling Shareholders participated in the Scheme as their participation and the number of Shares and terms of Options granted to them have been approved by independent shareholders of the Company on 28 April The actual numbers and terms of the Options to be granted to the Controlling Shareholders and their Associates shall be subject to the following : (i) (ii) the aggregate number of Shares available to Controlling Shareholders and their Associates must not exceed 25% of the Shares available under the Scheme; and the number of Shares available to each Controlling Shareholder or each of his Associates must not exceed 10% of the Shares available under the Scheme. Options which are accepted by the Participants may be exercised during the Option period and at the relevant exercise prices. All Options granted to Employees, must be exercised before the tenth anniversary from the Date of Grant or such earlier date as may be determined by the Committee, failing which the Option shall be deemed to have expired and shall ceased to be valid. All Options granted to Non-Executive Directors of the Group, must be exercised before the fifth anniversary from the Date of Grant or such earlier date as may be determined by the Committee, failing which Option shall be deemed to have expired and shall cease to be valid. 2 3

26 CORPORATE GOVERNANCE Remuneration Matters (cont d) During the year ended 31 December 2004, the shares options were granted to Executive Directors as well as Independent, Non- Executive Directors. The Independent, Non-Executive Directors provide invaluable guidance in relation to the strategic issues and development of the Group with their wealth of experience in corporate governance and business management. Although they are not involved in the day-to-day running of the Group, the Independent, Non-Executive Directors are frequently consulted on various matters in relation to the business of the Group. The Company therefore regards these persons as an additional resource pool and values their contributions greatly. The extension of the Scheme to Independent, Non-Executive Directors is therefore in recognition of their services and contributions to the growth and development of the Group. Before granting any Option to an Independent, Non-Executive Director, the Committee takes into consideration, his performance and contributions to the success and development of the Group. In assessing the performance of these Directors, the attendance at meetings, the membership in various committees as well as the contribution of individual directors are taken into consideration. The Independent, Non-Executive Directors are also members of the Executive Share Option Committee. However, one of the Rules of the Scheme provides that no member of the Committee shall participate in any deliberation or decision in respect of Options to be granted to him or held by him. The Independent, Non-Executive Directors are granted a small number of Shares so as to minimize the potential conflict of interest and not to compromise the independence of the Independent Non-Executive Directors. Particulars of share options granted to directors are as follows: Aggregate Aggregate Options Options cancelled Options Options granted Adjusted since date since date outstanding Person to whom during the financial Exercise of grant to of grant to as at options were granted year under review price Directors Teo Ho Beng - $ , Teo Ho Kang, Roland - $ , Lim Kim Soon Lee, Cindy - $ , Independent, Non-Executive Directors Chan Wah Tiong - $ , Dr Wang Kai Yuen - $ , Chan Boon Hui - $ , Accountability and Audit Principle 10 : Accountability of the Board and Management The Board is accountable to Shareholders for the management of the Group. The Board will update Shareholders on the operations and financial position of the Company through quarterly and full year results announcements as well as timely announcements of other matters as prescribed by the relevant rules and regulations through SGXNET. The management is accountable to the Board by providing the Board with necessary financial information for the discharge of its duties. The Executive Committee ( EXCO ) meets periodically to review the performance of the Group. The Board is provided with periodic financial reports and other relevant disclosure documents, where appropriate, by Management. 2 4

27 CORPORATE GOVERNANCE Audit Committee Principle 11 : Establishment of Audit Committee with written terms of reference The Audit Committee ( AC ) comprises entirely of non-executive and Independent Directors and the AC members are as follows: 1) Mr Chan Wah Tiong (Chairman of the AC / Independent Director) 2) Dr Wang Kai Yuen (Independent Director) 3) Mr Chan Boon Hui (Independent Director) The Board is of the opinion that the members of AC have sufficient expertise and experience to discharge their duties. The role of AC is to assist the Board of Directors in the execution of its corporate governance responsibilities within its terms of reference and requirements. The functions of AC include: a) reviewing with the external auditors, the audit plan, their evaluation of the system of internal accounting controls, their audit report, the Management letter and Management s responses; b) reviewing the quarterly and full year financial statements before submission to the Board for approval; c) reviewing the scope and results of the internal audit procedures including the effectiveness of the internal audit functions d) reviewing the assistance given by Management to the external auditors; e) reviewing the scope and results of the audit and its cost effectiveness and the independence and objectivity of the external auditors annually and the nomination of their re-appointment as auditors of the Company; f) reviewing all non-audit services provided by the external auditors so as to ensure that any provision of such services would not affect the independence of external auditors; g) investigating any matters within its terms of reference; and h) reviewing interested person transactions falling within the scope of the Singapore Exchange Securities Trading Limited ( SGX- ST ) Listing Manual. The Company has in place a whistle-blowing framework, endorsed by the AC where staff of the Company has direct access to the Chairman of AC to raise concerns about possible corporate improprieties in matters of financial reporting or other matters. The objective of such arrangement is to ensure independent investigation of such matters and for appropriate follow-up action. The AC has full access to all personnel, records and other information to enable it to properly discharge its function and has full discretion to invite any Director and/or executive officer to attend its meetings. The AC has received full co-operation from Management and external auditors. The AC met quarterly during the year and all members were present during these meetings. For the financial year ended 31 December 2008, the members met once with the external auditors without the presence of Management. The AC has undertaken a review of all non-audit services provided by the external auditors for financial year ended 31 December 2008, and is satisfied with the independence and objectivity of the external auditors. The AC has recommended to the Board of Directors that Messrs Ernst & Young LLP be nominated for re-appointment as auditors at the forthcoming Annual General Meeting. 2 5